Monthly economic review - September

20 Oct 2017

3 min read

Stocks surged on US and European markets over September, buoyed by improving company results and economic conditions in both regions, which enabled investors to look beyond the now-familiar geo-political posturing and domestic political concerns.

In the US, the S&P 500, Nasdaq Composite and Russell 2000 small-cap indices all closed September at record highs, while the Dow Jones Industrial Average virtually matched that, just 7 points shy of its all-time high.

The Dow Jones was up 2.1% in September, and 4.9% for the quarter; the S&P 500 gained 1.9% for the month, and 3.9% for the quarter; and the tech-heavy Nasdaq Composite added 1% for September, and 5.8% for the quarter. Both the Dow Jones and the SP&P 500 posted their eighth straight rising quarters, while the Nasdaq stretched its run of consecutive upward quarters to five.

In Europe, the Eurozone economy grew by 0.6% in the second quarter, or 2.3% on an annual basis – which is better than the 2.2% growth rate of the US. Job creation numbers were the best since 1997. On the back of the economic renaissance, the Stoxx Europe 600 index notched its best month since December 2016, up 3.8%, while Germany’s DAX index posted a 6.4% monthly gain, its best monthly performance for the year, after the re-election of German Chancellor Angela Merkel. In France, the CAC 40 index had its best month since March, pushing 4.8% higher. The UK’s FTSE 100 stock market index eased 0.8% in September.

The markets shrugged off further worries from North Asia, where North Korea tested a hydrogen bomb (reported to be seven times stronger than the bomb the US dropped on Hiroshima in 1945) and test-flew another missile, aiming to show (or imply) that it could deposit its new weapon on the American mainland. The United Nations Security Council responded with its harshest measures yet against North Korea, and China in particular applied crippling sanctions on its rogue neighbour. But the predictable response came late in the month – another missile test into the North Pacific, this one the longest yet flown.

During the month, US President Donald Trump announced his administration’s new tax plan, calling it “a miracle for the middle class.” The plan is built around a proposal aimed at lowering the corporate tax rate from 35% to 20%, while for individuals, folding the existing tax brackets from seven into three, with tax rates of 12%, 25% and 35%. But the plan faced immediate criticism and acknowledgement from the Republicans that it would be tough to progress it through Congress as drafted.

The August jobs number was underwhelming, with a jobs gain of only 156,000, and wage growth stuck at 2.5%. But investors preferred to fixate on data showing that the US economy grew at its fastest annual rate in more than two years in the June quarter, at 3.1%, and the fact that Federal Reserve announced that it would start to reduce the US$4.5 trillion size of its balance sheet. Meanwhile, interest rate expectations leaned to a rise in December.

In Asia, China’s industrial output rose 6% annually in August, well short of expectations of 6.6%, and the slowest growth pace this year. Retail sales and fixed-asset investment in urban areas were also much slower than expected – but the September manufacturing PMI managed to rise by 0.7 points to 52.4, indicating faster expansion. China’s sovereign credit rating was downgraded by S&P, which said the country’s attempts to reduce risks from its rapid debt build-up were not working as quickly as expected, and credit growth was still too fast.

The downgrade prompted a late-month sell-off that pushed the Shanghai Composite Index to a 0.3% loss for September, while Hong Kong’s Hang Seng index eased 1.5% in September, for its first monthly loss for 2017.

In Japan, Prime Minister Shinzo Abe called a snap general election for 22 October, which will pit him against rising political star, Yuriko Koike, Tokyo’s first female governor. Japanese economic data was on the whole positive, with industrial production rising by 2.1% month-on-month in August, while trade data showed that both imports and exports were strong. The Nikkei index recorded its best month of 2017, rising 3.6%. In South Korea, the KOSPI index added 1.3%.

In Australia, the S&P/ASX 200 index ended slightly lower on the month, as the mining sector was weighed down by weaker commodity prices. In particular, iron ore plunged 21.4% for the month. The $AUD fell against the $USD 1.4% owing to a strengthening of the $USD and weakness in the $AUD owing to softening commodity prices, to finish the month at 78.3 cents.

Information current as at 30 September 2017. This article provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. This information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to your personal objectives, financial situation and needs having regard to these factors before acting on it. This article may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, no company in the Westpac Group accepts any responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material.

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Information current as at 30 September 2017. This article provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. This information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to your personal objectives, financial situation and needs having regard to these factors before acting on it. This article may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, no company in the Westpac Group accepts any responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material.

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